Cash is Reality

Turnover is vanity, profit is sanity but cash is reality

No matter how successful your latest sales push has been or how much profit you have made, nothing brings you down as effectively as a cash flow crisis. To avoid having one, cash flow forecasts are crucial but once you have identified an impending cash flow problem, what do you do next? Cash is reality

Well, the important thing is to consider the sources of finance available to you. Most businesses immediately go to their bank seeking an increased overdraft. Like the man, who will only lend you an umbrella when the sun is shining, the bank may well refuse the facility based on credit scoring criteria assessed centrally. So what next? Change banks? Unfortunately, this is unlikely to work unless you have been saddled with a manager that did not understand your requirements. There are good managers out there but unfortunately they might not have any discretion in lending (especially to new customers) and then you will find you are back to the credit-scoring approach again.

There are better alternatives though and you need to consider which is best for you. First of all, consider what assets the increased finance will actually be financing. If it is debtors then you should consider factoring. Effectively, the factoring company is lending money secured on your debtors and if you go bust they will get paid from the collection of those debtors. Factoring sometimes has a poor reputation but perhaps this is because some of those that go into factoring do so as a last resort. With factoring, your customers pay their money to the factoring company. An alternative to this is invoice discounting, which works on the same principal but allows you to keep control of your sales ledger.

Asset purchases should be financed by one of a variety of lease or hire purchase contracts. Shop around though to find a lender that understands the nature of the asset you are buying. The more they understand your industry the more competitive they will be on interest rates. Even stock can be financed separately with a number of specialist lenders springing up.